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AXA IM: A compelling case for short duration EM bonds

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This is a sponsored article from AXA Investment Managers.

In the low yield environment, finding healthy sources of income remains a challenge. Emerging market (EM) bonds offer significantly better yields than their developed market peers, and may provide attractive risk-adjusted returns, particularly short duration EM bonds, according to AXA Investment Managers (AXA IM), one of the leading asset managers with strong expertise in short dated bonds.

“EM short duration offers a very attractive risk-return profile, benefiting from the low volatility landscape,” said Sailesh Lad, portfolio manager of AXA IM’s EM short duration bonds strategy.

“Not all investors wish to take duration risk in the environment of rising US interest rates and steepening yield curves, and this is where EM short duration bond funds come into their own,” added Lad, noting that EM short duration bonds are less sensitive to interest rate movements, while they offer clear visibility of cash flows.

EM bonds have significantly regained favour among investors over the past year on the back of improving fundamentals and a recovery in commodity prices.

According to fund data provider EPFR Global, EM bonds saw US$37.8 billion in net inflows in 2016.

Latin America looks attractive
Within the EM universe, AXA IM believes that Latin America, particularly Brazil, will provide the best risk-adjusted returns going forward.

Although Brazil’s volatile political environment has been in the spotlight for some time raising investor concerns, some large multinational export-oriented companies in the country are actually benefiting from the situation.

“The corporates in the different sectors that we have invested in have benefitted from the depreciating Brazilian real, meaning that their goods are more attractive for foreign purchasers and these names are not reliant on the domestic economy for revenues,” Lad said.

Combination of top-down and bottom-up analysis
Lad explains that his portfolios are managed using an amalgamation of top-down and bottom-up processes. Fundamentals remain the cornerstone of these assessments, followed by relative value.

“We are continually screening our investable universe for the most attractive names, but alongside this, we are conscious of liquidity in the market,” Lad said, adding that active management is particularly important when investing in emerging markets, which tend to be less efficient.

“As much as the EM universe is so vast and large with its own idiosyncratic dynamics, one thing remains and that is that one needs to be fully aware of developments in G3 markets.”

AXA IM is one of the market leaders in short duration fixed income strategies, managing over €25 billions (as at 31 July 2017) across ten short duration strategies since 2001.

Find out more about AXA IM short duration range

Sources: AXA IM as at October 2017



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This is a sponsored article from AXA Investment Managers.


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